Senate Tax Plan Will Include Provision To Eliminate Obamacare’s Individual Mandate

For some reason, Senate Republicans want to attach a bad health care reform idea onto an already controversial tax reform bill.

congress-healthcare

While the House of Representatives will vote on its own tax reform plan tomorrow and Republican leaders are confident it will pass, the Senate has been moving forward with its own plan that includes major differences to the bill being considered in the House. Primarily, the two plans as they are known right now differ in the number of tax brackets that they include, with the Senate plan retaining as many as seven different brackets based on income levels while the House plan would shrink the number of brackets to three. Additionally, the Senate plan would eliminate the deduction for state and local taxes entirely whereas the House plan would limit the deduction to $10,000. On the other hand, the Senate plan keeps the entire mortgage interest deduction in place while the House plan would cap the deduction at $500,000, a 50% reduction from the current cap of $1,000,000. The Senate plan would also delay reductions in the corporate tax rate by one year in an effort to get around deficit concerns, and changes the way that the tax code treats so-called “pass-through” business entities such as LLCs and Subchapter-S corporations to a significant degree. Additionally, the Senate plan would keep the adoption tax credit as well as deductions for medical expenses and would increase the exemption for the Estate Tax so that it is effectively doubled whereas the House plan would eliminate the Estate Tax entirely.

Perhaps the most significant change, though, is the one announced yesterday, and it has nothing to do with taxes per se. Instead, it would reignite the debate over health care reform by eliminating the Affordable Care Act’s health insurance mandate:

WASHINGTON — Senate Republicans have decided to include the repeal of the Affordable Care Act’s requirement that most people have health insurance into the sprawling tax rewrite, merging the fight over health care with the high-stakes effort to cut taxes.

They also have made a calculated gamble to help speed their bill to passage on a party-line vote: Republicans revealed late Tuesday they would set all of their tax cuts for individuals to expire at the end of 2025, to comply with a procedural requirement. Their deep cut in the corporate tax rate would remain permanent.

Both the expiration decision and the move to tuck the repeal of the so-called individual mandate into the tax overhaul are attempts by Republicans to solve two problems: math and politics. Repealing the mandate, a longstanding Republican goal, would save hundreds of billions of dollars over the next decade. That would free up money that is earmarked to expand middle-class tax cuts.

Setting individual provisions to expire helps hold down the overall cost of the bill, which can add no more than $1.5 trillion to the deficit over 10 years and cannot add to deficits after 10 years. Mandate repeal could also help secure the votes of the most conservative senators, enabling lawmakers to pass the bill along party lines.

The decision to set individual provisions to expire at the end of 2025 could set up a potential “fiscal cliff” situation then, akin to the one President Barack Obama and Congress faced at the end of 2012. Those breaks include tax-rate reductions, the near-doubling of the standard deduction and a provision to reduce the number of Americans who would have to pay the estate tax. Republicans made those changes to stay within Senate rules that allow them to pass the bill on a party-line vote; as promised, they did not set expiration dates on the bill’s corporate rate cut.

If the bill were to become law, and Congress did not seek to make those provisions permanent, tax bills would rise for vast parts of the country in 2026.

The mandate repeal would save more than $300 billion over a decade but result in 13 million fewer Americans being covered by health insurance by the end of that period, according to the Congressional Budget Office. Republicans said on Tuesday that they would use the savings — which stem from reduced government spending to subsidize health coverage — to pay for an expansion of the middle-class tax cuts that lawmakers had proposed

Middle-class measures in the revised tax plan released late Tuesday include expanding the child tax credit to $2,000 a child, up from $1,650 in the original version of the Senate plan, and three reductions in marginal tax rates. One rate would fall to 22 percent from 22.5 percent; another to 24 percent from 25 percent; and another to 32 percent from 32.5 percent.

On the House side, members of the Rules Committee met Tuesday evening, one day earlier than scheduled, to pave the way for a floor vote on Thursday.

Democrats said the mandate repeal would underwrite tax cuts for the rich at the expense of people who buy insurance on the individual market.

“The people this is going to hit are middle-class people that ostensibly this whole bill was supposed to be about helping,” said Senator Claire McCaskill, Democrat of Missouri and a member of the Finance Committee.

Average health insurance premiums in the individual market would increase by about 10 percent, but insurance markets would remain stable in almost all parts of the country, the budget office found.

President Trump has urged his fellow Republicans to repeal the mandate in their tax bill, and in recent days, the idea has gained steam in the Senate Republican conference as lawmakers try to come up with a plan that can receive at least 50 votes.

“We’re optimistic that inserting the individual mandate repeal would be helpful,” said Senator Mitch McConnell, Republican of Kentucky and the majority leader.

But the move risks reviving the contentious debate over health care that Republicans found themselves mired in for much of the year. Previous efforts to dismantle the Affordable Care Act have failed, leaving Republicans with little legislative success to show for their congressional majority.

“This is turning a tax bill into a health care bill, with our colleagues getting an hour’s worth of notice,” said Senator Ron Wyden of Oregon, the top Democrat on the Finance Committee.

In a letter on Tuesday, groups representing doctors, hospitals and insurers urged congressional leaders to keep the individual mandate in place. The groups, which included the American Medical Association and America’s Health Insurance Plans, wrote that “eliminating the individual mandate by itself likely will result in a significant increase in premiums, which would in turn substantially increase the number of uninsured Americans.”

(…)

In tandem with repealing the individual mandate as part of the tax bill, Mr. Thune said that Republicans were committed to advancing a bipartisan measure to stabilize health insurance markets developed by Senators Lamar Alexander, Republican of Tennessee, and Patty Murray, Democrat of Washington. That measure, whose fate has been uncertain, would include two years of funding for subsidies to insurers — known as cost-sharing reduction payments — that Mr. Trump decided to cut off last month.

But Ms. Murray rejected any suggestion that the mandate repeal could be paired with her legislation.

“That is the exact opposite of what we should be doing,” she said. “Americans have stood up and spoken loudly for the last year saying they do not want the markets destabilized, and their provision in the tax bill that they are talking about will really destabilize the marketplaces.”

If this latest Republican attack on the Affordable Care Act sounds familiar, that’s because it should, Essentially, what we’re looking at here is another version of the so-called “skinny repeal” package that was before the Senate at the end of July as it desperately tried to pass some kind of health care legislation prior to the August recess. As with this proposed amendment to the tax bill, that bill would have repealed the individual mandate but taken no other action with respect to any of the provisions of the Affordable Care Act. A Congressional Budget Office analysis conducted at the time projected that the bill would have led to tens of millions of Americans losing health coverage and would have increased premiums significantly across the board for both individual plans and employer-based plans. Other projections also showed that it would have significantly destabilized the health insurance market in general due to the fact that it likely would have led to younger, healthier individuals voluntarily dropping their coverages, meaning that insurance pools would become older, sicker, and more expensive. All in all, it was a bad bill and even Senators who voted for it said they never intended for it to become law. Instead, they wanted it to be the basis to force a conference committee with the House in an effort to put together a bill that could get through both bodies. That effort, though, came to an end when McCain, who had just been diagnosed with cancer, returned to the Senate to deliver a late-night thumbs down that sealed the bill’s fate.

Now, however, the Senate seems intent on reviving that plan, which again was never intended to actually become law, as an add-on to their tax reform package, and the only reason for it seems to be some desire to show that they can deliver on Obamacare repeal after all. Of course, the fact of the matter is that both “skinny repeal” would leave much of the Affordable Care Act in place, albeit in a form that would likely end up being fiscally and structurally unsustainable and lead to even worse health care options for the vast majority of American citizens. Even if you agree with the proposition that the PPACA was bad policy at the time it was adopted and should be replaced, as I generally do, the idea of repealing it only in part and “reforming” it in a manner that would make the healthcare situation far worse for everyone makes utterly no sense at all.

Politically speaking, it’s hard to say what this means for tax reform generally. As I noted, skinny repeal itself failed in the Senate, but it did so thanks only to the fact that three Senators, including McCain, Susan Collins, and Kentucky Senator Rand Paul, ended up voting no on the bill. Whether they would do the same when that same bill is attached to tax reform is an open question. At the same time, though, the fate of tax reform in the Senate was already unclear in the Senate and it doesn’t appear that anyone has even an estimated head count for the bill going forward. As with health care reform, Senate Majority Leader Mitch McConnell only needs 51 votes, or fifty plus Vice-President Pence’s tie-breaking vote, to pass the bill, but that once again means that he can only afford to lose two Senators in the GOP Caucus assuming that he doesn’t get any support from the Democratic side of the aisle, something that seems even less likely if they go forward with this idea of slapping health care onto the tax reform bill.

As it stands, tax reform was the one issue that Republicans were hoping they’d be able to get passed to push back against claims that they haven’t accomplished anything this year. This action by the Senate would seem to guarantee that they’ll go down as being a “Do Nothing Congress” after all.

FILED UNDER: Congress, Health Care, Taxes, US Politics, , , ,
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. MarkedMan says:

    The estimate is that 13 million Americans would lose coverage. So the Republicans are literally taking healthcare away from millions of Americans so they can give tax breaks to corporations and the top 5%, especially the top 0.1%, that people who live off investments get taxed at a lower rate than people who earn a salary, and make sure that parasite kids like Donnie Jr and Eric can avoid the taxes you or I would have to pay.

    Ladies and Gentlemen, the Modern Republican Party

  2. Daryl's other brother Darryl says:

    This is a brilliant political move by the Trumpublicans.
    I mean…who can possibly argue that tossing 13M people off insurance, and guaranteeing rate hikes, in order to cut the taxes of the super-wealthy isn’t the moral thing to do?
    13M people or Donnie Jr. and Ivanka…easy choice to make.

  3. Daryl's other brother Darryl says:

    OT…
    Roy Moore is now down 12 points according to a new National Republican Senatorial Committee poll.
    He was up by 16 in October.

  4. gVOR08 says:

    @Daryl’s other brother Darryl: No wonder that gutless wonder McConnell was backtracking. He likely got a preview from raw data a few days ago.

  5. Daryl's other brother Darryl says:

    OT…from the“you can’t make it up” file
    Dumb Don, while giving a speech decrying trade deficits, pauses to take a drink of FIJI water.
    FIJI water is derived, bottled, and shipped from Fiji.
    #MFGA

  6. Mister Bluster says:

    FIJI water is derived, bottled, and shipped from Fiji.

    Let’s not tell Chump about this:

    “All the water on Earth has been through a dinosaur kidney,” Fisherman tells Marketplace.org. “Every bottle of Evian you drink from is Tyrannosaurus Rex pee. All the water on Earth has been here for 4.5 billion years. It’s all toilet-to-tap at some level.”

    Tech Times

    (Whatever happened to all the LSD that the Hippies put in the Chicago water supply in 1968?)

  7. Tyrell says:

    They might as well do away with it. Any halfway decent tax preparer knows ten ways around the mandate.
    We need tax reform. That should include a tax cut for the middle class working people, and a simpler tax form that does not take a Harvard MBA or a nuclear physicist to fill out. The IRS is very helpful, if you don’t mind a two hour wait on the phone. They need to think outside the box: a flat tax, or some kind of sales tax.
    The medical deduction should be increased and broadened to include more procedures and activities.
    Credit card interest should be deductible, and more personal expenses.

  8. HarvardLaw92 says:

    @Tyrell:

    A flat tax would unavoidably raise – significantly – actual tax rates on the middle and lower classes. Likewise sales taxes.

    That having been said, middle class Americans enjoy one of the lowest actual tax rates in the world, but think they are overtaxed.

    Run a test calculation on what the actual federal income tax rate is for a family of four, two kids, which earns $70,000 per year.

    (Hint: it’s less than 4%).

  9. CET says:

    “Politically speaking, it’s hard to say what this means for tax reform generally.”

    Agreed. I can’t tell if this is a ‘We know we have the votes for this, so we dare Collins or McCain to vote no, just because of the individual mandate repeal’ or a ‘We know we don’t have the votes for this, so we might as well put in all in there so we can say we tried.’ It doesn’t really make sense if it’s somewhere in the middle though….

  10. Mr. Prosser says:

    Ron Johnson of Wisconsin said today he is not in favor of the present plan since it allow corporate tax cuts to be forever while individual cuts end in 2026. I doubt he’ll stay against it but there will be much more of this.

  11. Gustopher says:

    @Tyrell: Why on earth would we want to make credit card interest deductible? Do we want to encourage personal debt?

    The mortgage interest is one thing — at a policy level, we believe that people should own homes — but do we really want to encourage buying crap?

    Let’s make opiods and meth tax deductible as well, while we’re at it.

  12. Bob@Youngstown says:

    @Tyrell: still convinced Tyrell is a bot broadcasting nonsense

  13. DrDaveT says:

    @Gustopher:

    The mortgage interest is one thing — at a policy level, we believe that people should own homes

    Speak for yourself. This is actually a really pernicious barrier to wealth accumulation — talking people into mortgaging their lives (literally) before they are financially ready for it, because of The Dream of Home Ownership.

    At a policy level, I believe people should be financially secure, even if that means renting for life.

  14. Andre Kenji says:

    It makes no sense to have a mortgage interest deduction and no deduction for medical expenses.

  15. HarvardLaw92 says:

    @Andre Kenji:

    It does if you’re trying to pander to voters who have both employer provided health insurance and a mortgage.

  16. Monala says:

    @Gustopher: not to mention, “make the tax retun easier” and “add more credits ” are contradictions.

  17. Monala says:

    @Gustopher: not to mention, “make the tax form simpler” and “add more deductions” are contradictions.

    .@Tyrell: regarding the mandate, exemptions are built into the tax law. The ACA really wasn’t trying to screw people for whom purchasing insurance is a hardship.

  18. SC_Birdflyte says:

    @Monala: Another oxymoron that one sometimes hears from Washington whenever the discussion turns to taxes: “A fair and simple income tax.”

  19. CET says:

    @SC_Birdflyte:

    I totally get where you’re coming from, but I suspect such a thing does exist*, it just isn’t politically viable given the way campaign finance works.

    *I’m picturing a zero or negative income tax at the lowest brackets, up to something like 50+ percent at the highest brackets, no deductions, all income is taxable (e.g. capital gains, ‘job perks’, etc, are treated like any other income source). If gutting subsidies for oil, corn, etc saves enough that the corporate tax rate can be lowered significantly, cool, if not, c’est la vie.

    It would take a little while for things to re-equilibrate (CA would have to rethink they way it does taxes, for example), but I’m ok with that….

  20. Just 'nutha'... says:

    @HarvardLaw92:

    (Hint: it’s less than 4%).

    Ummm… you do get that the actual assertion, albeit unspoken, of your challenge and hint is that $70,000 is the equivalent of a near poverty-level income of, say, 1975 or so, right?
    [BTW, I’m not accusing you of innumeracy, just noting it for illustrative purposes.]

    Is there anyone other than me (and, I’m guessing HL92) who sees “what’s wrong with this picture?”

  21. Just 'nutha'... says:

    @Bob@Youngstown: Yeah, we’re all pretty unclear about whether Tyrell is
    * a bot
    * a troll
    * an actual old redneck cracker who gets easily confused
    or…
    * a performance artist portraying an old redneck cracker to bring trolling to a new level.

    I lean toward 4, but some days I wonder.

  22. DrDaveT says:

    @CET:

    I’m picturing a zero or negative income tax at the lowest brackets, up to something like 50+ percent at the highest brackets, no deductions, all income is taxable

    Many people do not understand that the most complex parts of the tax code are not the parts that say how much of your income you owe — they are the parts that define what is, and is not, income.

    Properly speaking, the US does not tax income. It taxes transfers of wealth, which means the tax code has to tell you how to deal with barter, with transactions at other than market value, with appreciation of value not yet realized, with remuneration in kind, with inheritance, with distributions from trusts, with sole-proprietor revenues and/or profits, and a thousand other things that aren’t what springs to mind when you think of ‘income’. And that’s just on the personal income tax side, before you ever touch the quagmire that is corporate income tax.

  23. DrDaveT says:

    @Just ‘nutha’…:

    Ummm… you do get that the actual assertion, albeit unspoken, of your challenge and hint is that $70,000 is the equivalent of a near poverty-level income of, say, 1975 or so, right?

    Maybe I’m wrong, but I took that $70k family of four to be an uncontroversial “middle class” example. If the middle class is paying an effective 4% in federal income tax, then tax breaks for the middle class don’t seem like a high priority.

    I’m not endorsing the numbers there — I have no idea whether that’s the right percentage or not. Just trying to understand what argument is being made and/or rebutted. I do note, though, that in 2013 the average household in the middle quintile of the income distribution earned about $68k (just under the $70k cited by @HarvardLaw92), and paid about $9k (or a bit over 13%) in federal tax on that. So I’m not sure where the 4% figure comes from.

  24. HarvardLaw92 says:

    @DrDaveT:

    I calculated it based on standard deductions, exemptions, child credits, etc.

    The CBO figure takes in account all households earning $70,000. I specifically included the kids for a reason.

  25. Flat Earth Luddite says:

    From what I’m reading, 70k is less than equivalent to the 14k my da made in 1973. He could live in a nice middle class neighborhood, own a house and new car, and raise 2 kids. Can’t do that most places in the USA today on 70, or 120. I’m just hoping I’m gone before the red masque happens.

  26. Flat Earth Luddite says:

    From what I’m reading, 70k is less than equivalent to the 14k my da made in 1973. He could live in a nice middle class neighborhood, own a house and new car, and raise 2 kids. Can’t do that most places in the USA today on 70, or 120. I’m just hoping I’m gone before the red masque happens.

  27. CET says:

    @DrDaveT:

    Fair point. What I was trying to get was that it seems like a lot of the complexity comes from parts of the tax code that are intended to incentive certain behavior (marriage, homeownership, adoption, charitable giving, etc, etc). It isn’t clear to me that this is more effective than just having a tax code that is more progressive overall, so that people in the bottom 50-60% have more money in general and not just when they do things that ‘we’ think should be incentivized.

    But yea, I get there are always going to be a million different weird cases around the edges – some because that’s how life is, and some because if you’ve got swimming pools full of money, it’s cheaper to hire a good tax lawyer than to pay all of your taxes. To the extent possible though, I would generally advocate for anything that leads to material or financial gain to be counted as income (see comment about wealthy taxpayers finding and exploiting loopholes).

  28. DrDaveT says:

    @CET:

    What I was trying to get was that it seems like a lot of the complexity comes from parts of the tax code that are intended to incentive certain behavior

    True. Even more of the complexity comes from Congress’s insistence on disguising welfare as “tax law” so that they can tell their constituents that they’ve never voted for a welfare bill. The absurdly misnamed Earned Income Tax Credit is a straight means-tested handout — but administered through your tax return, rather than through HHS, so that it won’t look like welfare. Similarly for all of the other “refundable credits”.

    The basic problem that the GOP wants you to ignore is that rich people have more ways of making money, and get less benefit from a dollar, than poor people. Their idea of “tax reform” is to make sure that the standard ways of making money (e.g. wages) get taxed fully, while the rich people ways (inheritance, capital gains, trust income, S-corporations, etc.) get taxed at lower or zero rates — and that the marginal rate for poor people is higher than the marginal rate for rich people, in utility if not in absolute dollars.

  29. DrDaveT says:

    @HarvardLaw92:

    I calculated it based on standard deductions, exemptions, child credits, etc.

    Fair enough. I would have expected the average number of kids in that quintile to be at least 2, so I’m surprised that you come out so far below the average for all households. On the other hand, I’m guessing that the distribution of tax bills within that quintile is pretty strongly right-skewed, with the 50%-60% decile paying a whole lot more per household than the 40%-50% decile.

  30. CET says:

    @DrDaveT:

    Doubleplusagree.